Raiffeisen shares slump after short-seller Grizzly spotlights Russia ties

By Alexandra Schwarz-Goerlich, Linda Pasquini and John O'Donnell

VIENNA, Sept 17 (Reuters) - Austria's Raiffeisen Bank International (RBI) faces renewed scrutiny as the biggest Western bank still operating in Russia, after a short-seller alleged it was a key channel enabling more than $1 billion of Russian trade to circumvent sanctions.

Raiffeisen said on Thursday the report by Grizzly Research was misleading and contained factual errors. The bank's shares fell as much as 9% following publication of the report.

"We stand by the strength of our compliance systems, which have been reviewed many times," Raiffeisen said in a statement, adding that it has been trying for years to leave Russia, making a number of failed attempts to sell up.

US authorities warned RBI in 2024 that it could be prevented from accessing U.S. dollars on account of its dealings with Russia, but never carried out the threat.

Raiffeisen has reduced but never closed its bank in Russia, which is the biggest lender in the country that is not subject to the sanctions which have isolated local rivals, meaning it has become crucial for trade payments, including gas exports.

Grizzly said the bank had become a key channel for getting around Western sanctions, involving trade of more than $1 billion and including some goods used in Russian weapons.

Grizzly said it had a short position on RBI's stock, which allows it to profit from a falling share price. 

FINANCIAL LINCHPIN IN AUSTRIA

With sprawling industrial holdings, more than 18 million customers from Vienna to Moscow and 44,000 staff, Raiffeisen is a financial linchpin for Austria and much of eastern Europe.

Russia became an even bigger money spinner for the bank in the aftermath of the war with Ukraine, although it has been stopped by Moscow from taking billions of euros in profit out of the country.

Austria and Russia have been intertwined since the Russian army's occupation of the country at the end of World War Two, handing back its independence on condition it stayed neutral.

Vienna became an important financial hub for Russia and Austria went on to become the first Western European country to sign a deal to buy Russian gas.

Raiffeisen has made several attempts to sell its Russian arm to a local buyer in the hope that Moscow would lift the bar on repatriating the windfall profits.

Russian officials, however, have opposed the sale in a desire, sources have said, to maintain what remains of its economic ties with Europe, which still buys billions of euros of Russian oil and gas, albeit far less than before the war.

Raiffeisen's special status and its size, which is far bigger than the other European banks in Russia, Italy's UniCredit and smaller Hungarian group OTP Bank, have allowed RBI to build up billions of euros in profits now stranded there.

(Reporting by Linda Pasquini; Additional reporting by Alexandra Schwarz-Goerlich; Editing by Thomas Seythal, Kirsten Donovan, Elaine Hardcastle and Alexander Smith)